Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

814.10/10–2254: Telegram

The Ambassador in Guatemala (Armour) to the Department of State

confidential

Guatemala City, October 22, 1954—4 p.m.

332. Joint State–FOA message. President Castillo informed me yesterday he attaches highest priority completion and improvement south coastal highway and suggested Guatemala could provide one for each two dollars granted by US. On basis this new approach and in light following considerations, recommend reconsideration 5 million grant (Department telegram 324 October 21):¹

(1) As a result our identification in Guatemalan official and public mind with liberation movement and statements by US officials concerning aid there is general expectation large-scale grant as witness Monzon’s memorandum² requesting some 280 millions. We have succeeded in reducing requests from 280 to 10. We believe we can cut 10 to 5 without bad effect. But we cannot go all the way to 1 without serious risk disillusionment and addition another element instability in already difficult and complex situation.

(2) Grant need not be regarded as precedent. Roosevelt Hospital and Inter-American Highway are continuation old programs and are not peculiar Guatemala. Aid on basis Guatemala matching funds can be said be extension same program designed maintain equality treatment by making up for years when Guatemala received no aid because Communists.

(3) There is real need. Money could be used kill several birds one stone—help restore confidence economy, alleviate unemployment and help build roads now virtually impassable on Pacific Coast agricultural region over which between 60 to 80 percent of wealth produced in country must move.

(4) Guatemala is doing its part. New one-time tax imposed October 19 designed supply $6.2 million is stiff medicine especially at time of falling coffee prices. Furthermore, Castillo sincerely desires put economic house in order as witness request for financial advisor and disposition discuss with us in advance petroleum and other major economic policies.

(5) Policy of little or no aid may well diminish Embassy’s influence on negotiations for new petroleum law, new contract United Fruit and adjustment differences re electric company, Grace Lines and Pan Air. Success in obtaining satisfactory oil law might alone yield tax revenues to US far in excess of 5 millions in issue.

(6) Failure supply adequate grant may result in no aid in view Guatemala’s long tradition no foreign loans. It will certainly postpone aid for estimated minimum one year required make detailed justifications and conclude negotiations with lending institutions. Next 12 months are critical ones.

(7) We disagree sound projects cannot be developed quickly. World Bank assigns high priority south coastal highway, page 203, its detailed report.³ Johnson Drake Piper, 86 Trinity Place, New York, did considerable work south coastal roads 1949–50 and estimates cost resurfacing 52 kilometers Guatemala City to Escuintla at half million. This central artery very bad condition and cost-saving it will be higher if not repaired soon. Same company estimates cost repair completion 113 kilometers Popaya to Retalhuleu to Talisman and 32 kilometers Retalhuleu to Champerico at 8.5 millions with estimated dollar costs including 1 million asphalt and fuel, 1.2 million steel bridge work, 1.1 million culvert pipe, reinforcing steel, tracts, spare and replacement parts for Guatemalan road building equipment. Estimates Guatemalan Highway Department higher with neither figure including cost connection highway with Salvador also desired by President. This American company offers commence work within 30 days on basis cost plus 5½ percent with appropriate incentive clauses. Regardless whether this or other agency or company used it should not be difficult with competent FOA or Bureau Public Roads supervision assure efficient use. Completion detailed justification serve basis bids might take month. Furthermore, in unlikely event unable wisely spend entire sum this year carry over small excess into next year as in case other countries should present no serious problem.

(8) Time of essence. We have too large a stake in this government to delay meaningful aid.⁴

Armour

1. No telegram fitting this description was found in Department of State files. The reference may be to telegram 276, dated Oct. 20, 1954, which reported that FOA was not in a position to provide Guatemala with grant of $5 million because of fund limitations and no clear indication of progress toward developing sound projects. It would, however, consider a possible grant of $1 million and keep it under continuous review. (814.00 TA/10–1954)
2. Not identified.
3. Reference is to The Economic Development of Guatemala: Report of a Mission sponsored by the International Bank for Reconstruction and Development in collaboration with the Government of Guatemala (Washington, 1951).
4. In a memorandum of telephone conversation between Ambassador Armour, Counselor of Embassy Mann, and Assistant Secretary Holland, dated Oct. 25, 1954, Mr. Holland is reported as having stated that the FOA had agreed to increase the total amount of aid to Guatemala from $2.8 million to $5 million, that the increase “had been obtained just on muscle”, and that “the disposition to do what was necessary was deep and reliable here and, if we pushed it the right way, whatever had to be done could be done.” (814.00 TA/10–2554) Information in Department of State files indicates that the additional $2,200,000 was to be made up of $1,700,000 transferred to Guatemala from the general technical cooperation account for Latin America and $500,000 from the development aid account for Bolivia (Memorandum to Under Secretary Murphy, by Special Assistant to the Secretary Nolting, Oct. 25, 1954, not printed, 814.00/10–2554).